Explain under what conditions a divestiture will lead to EPS dilution or accretion if the proceeds from the divestiture are used: (1) to repay debt; (2) to repurchase shares. How do your answers affect value created by a divestiture?
Answer to relevant QuestionsDescribe the key reasons why divesting a business can create value for shareholders, even when the business is still in the early stages of its life cycle. An oil company wants to divest its low-growth chemicals division, which has an estimated stand-alone value of around $5 billion and represents around 40 percent of the entire oil company’s value. What do you think could be ...Discuss the importance of the “pecking order” theory for managing the capital structure of a company, in terms of both short-term, tactical financing decisions and long-term, strategic decisions. What do executives believe are the benefits of issuing EPS guidance? Are these benefits actually realized by companies? In year 0, SmoothCo has $50 million in cash and $50 million in inventory, financed by $100 million in equity. In year 1, the company records $100 million in revenue, $80 million in operating costs, and $10 million in ...
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